My wife received a lump sum severance package, which effectively doubled her salary for the year. Now and at least for the near future, she is a stay-at-home mom with no income.

A friend of hers (also receiving a lump sum) mentioned using "income averaging" in relation to taxes. It is not clear to me in what context it was discussed (1999 tax owed, future withholdings, pension or something else). I reckon that taxes are due in the year a lump sum is received, but I have to ask; Is there some way to spread out a large lump sum over several years (especially when our income will be substantially lower in the following years)?

<< A friend of hers (also receiving a lump sum) mentioned using "income averaging" in relation to taxes. It is not clear to me in what context it was discussed (1999 tax owed, future withholdings, pension or something else). I reckon that taxes are due in the year a lump sum is received, but I have to ask; Is there some way to spread out a large lump sum over several years (especially when our income will be substantially lower in the following years)? >>

Income averaging as it once existed is gone, except for farmers. There is some 5 and 10-year averaging available on lump-sum retirement distributions, but I don't believe your wife qualifies. There may be an article on this in the FAQ, and you can read up on it in IRS Publication 575.